[Federal Register Volume 60, Number 65 (Wednesday, April 5, 1995)]
[Notices]
[Pages 17376-17378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8340]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35550; File No. SR-CHX-95-03]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Granting Approval to Proposal Rule Change and Notice of Filing
and Order Granting Accelerated Approval of Amendment No. 2 to a
Proposed Rule Change Relating to Reporting and Disclosure Requirements
March 30, 1995.
On February 6, 1995, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend various Exchange Rules
regarding reporting and disclosure requirements. Specifically, the rule
change proposed to (1) Amend Article VI, Rule 5 and add an
interpretation thereto to require that members and member organizations
maintain written procedures to ensure compliance with the securities
laws (and SEC regulations promulgated thereunder) and the Rules of the
Exchange; (2) amend Article XI, Rule 4 to provide the Exchange with the
authority to require any member or member organization to have an
accounting firm audit its books and to clarify that all members and
member organizations are required to comply with the disclosure
requirements of Rule 17a-5; and (3) add Article XI, Rule 9 to require
that floor brokers who do not clear their own trades procure a letter
of guarantee prior to trading. On February 14, 1995 and March 30, 1995,
the Exchange submitted to the Commission Amendments No. 1 and No. 2,
respectively, to the proposed rule change.\3\
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
\3\Amendments No. 1 and No. 2 made non-substantive, clarifying
changes to the proposal. See Letters from Jay O. Wright, Esq., Foley
& Lardner, to Elisa Metzger, Senior Counsel, SEC, dated February 14,
1995 and March 30, 1995.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 35394 (February 17, 1995), 60 FR 10620
(February 27, 1995). No comments were received on the proposal. This
order approves the proposed rule changes.
I. Proposal
Currently, Article VI, Rule 5(c) requires each member organization
that does business with the public to establish procedures, and a
system for applying such procedures, to assure that its registered
representatives and other [[Page 17377]] employees are adequately and
closely supervised. Rule 5(c) further states that a system will be
deemed adequate only if it is reasonably designed to prevent and detect
violations of the applicable securities laws, the rules and regulations
thereunder, and the CHX Constitution and Rules. The CHX is proposing to
amend Article VI, Rule 5 and add an interpretation thereto to require
that such procedures and systems be in writing. The CHX believes that
requiring written procedures allows the CHX to more easily verify the
existence of such procedures and that such a requirement facilitates
the CHX's verification of the content of the procedures. The CHX also
believes that the visibility of such written procedures will remind
members and member organizations of their obligations to comply with
the securities laws, SEC rules, and the CHX's rules, thus enhancing
compliance.
The CHX is also proposing amendments to Article XI, Rule 4. Article
XI, Rule 4 requires certain member organizations to have an audit as
required by SEC Rule 17a-5 and any other additional audits that the
Exchange may require for good cause.\4\ The additional audits must be
made by an independent public accountant, acceptable to the CHX and be
conducted in accordance with the requirements of SEC Rule 17a-5. The
CHX is amending the rule to provide the Exchange with the authority to
require any member or member organization to have an accounting firm
audit its books and have the member or member organization file a
statement with the Exchange to the effect that such additional audits
have been made. In addition, the CHX's purpose for amending Article XI,
Rule 4(c) is to clarify that all CHX members and member organizations
are required to file monthly and quarterly Focus Reports with the CHX
in accordance with SEC Rule 17a-5 unless the member or member
organization is exempt.
\4\Article XI, Rule 4 excepts out of the rule, member
organizations that are self-clearing and member organizations that
do a securities business only with other members of a national
securities exchange.
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Finally, the CHX proposes to add a new rule, Article XI, Rule 9,
which would require floor brokers who do not clear their own trades to
procure a letter of guarantee prior to trading. The CHX's purpose for
adding Article XI, Rule 9 is to enhance the safety and soundness of the
clearing system by ensuring that Floor Brokers have sufficient
financial resources to stand behind their trades As a result, fewer
disruptions due to the financial distress of a floor broker are likely
to occur.
II. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Section 6(b).\5\ In particular,
the Commission believes the proposal is consistent with the Section
6(b)(1) requirement that the exchange have the capacity to enforce
compliance by its members and persons associated with its members, of
the federal securities laws, rules and regulations thereunder and the
rules of the exchange. The CHX proposal will permit the CHX to verify
the existence and content of procedures and systems that require
compliance with the federal securities laws, rules and regulations
thereunder and the CHX rules. In addition, the Exchange's proposed
amendments to Article XI, Rule 4, clarify that all members and member
organizations are required to comply with the disclosure requirements
of SEC Rule 17a-5.
\5\15 U.S.C. 78f(b) (1988).
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The Commission believes the proposal is consistent with the Section
6(b)(5) requirements that the rules of an exchange be designed to
prevent fraudulent and manipulative acts, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public.
Specifically, the proposed amendments to Article VI, Rule 5 which
require written procedures that ensure compliance with applicable rules
and laws, will prevent fraudulent acts and practices and protect
investors and the public by enforcing compliance with the federal
securities laws, SEC rules and CHX rules. Similarly, the Commission
believes that the proposal to provide the Exchange with the authority
to require any member or member organization to have an accounting firm
audit its books and to clarify that all members and member
organizations must comply with SEC Rule 17a-5, is consistent with the
Section 6(b)(5) requirements. These proposals will enable the CHX to
investigate any concerns it has with respect to potential financial
problems of its members or member organizations. Accordingly, the
Exchange's awareness of any financial problems in advance could limit
the impact of that member's financial condition on the market.
The Commission also believes that the proposal to add Article XI,
Rule 9 to require that floor brokers who do not clear their own trades
procure a letter of guarantee prior to trading is consistent with the
Section 6(b)(5) requirements. The Commission agrees with the Exchange
that the proposed rule will ensure the safety and soundness of the
clearing system by ensuring that floor brokers have sufficient
financial resources to stand behind their trades. The proposed rule
will improve the reliability of the clearing system because fewer
disruptions due to the financial distress of a floor broker are likely
to occur.
The Commission finds good cause for approving Amendment No. 2 prior
to the thirtieth day after the date of publication of notice of filing
thereof in the Federal Register. Specifically, Amendment No. 2 makes
non-substantive, technical changes to the proposal. The Commission
believes that these technical changes are not material changes that
raise regulatory concerns not already addressed by the proposal.
Accordingly, the Commission believes it is consistent with Sections
6(b)(5) and 19(b)(2) of the Act to approve Amendment No. 2 to the
proposal on an accelerated basis.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 2. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549. Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying at the Commission's Public Reference Section, 450 Fifth Street,
NW., Washington, DC 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the CHX. All
submissions should refer to File No. SR-CHX-95-03 and should be
submitted by April 26, 1995.
IV. Conclusion
It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act\6\
that the [[Page 17378]] proposed rule change (SR-CHX-95-03), as amended
is approved.
\6\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8340 Filed 4-4-95; 8:45 am]
BILLING CODE 8010-01-M
